If a company were to borrow an asset for use in the business, should you recognise this in the accounts (FRS102). If so, how?
- A farming company borrowers a £200k pea viner from a friend of the farmers - There is no consideration and the pea viner must be returned when the owner requests for it to be
- A tourist attraction borrowers a 1kg bar of gold worth £50k to exhibit - There is no consideration and a gold bar must be returned when the owner requests for it to be
The bar of gold is fungible, and in theory the owner could allow the company borrowing the gold to sell the bar, provided that they can provide a replacement bar of the same quality when the owner would like it back.
I don't believe that lease accounting would/could apply, given that there would be no consideration, and that the asset is not being lent for a fixed term.
On the face of it to me, niether transaction would need to be recognised in the accounts. There is, however, a risk to the company of using the asset (eg it is damaged or lost) and therefore perhaps a disclosure is all that is required?
In the gold example, the company could generate £50k of cash from the borrowed of the asset, but would then have an obligation to buy back the same type of gold bar. Would this just be recognised as a £50k provision in the accounts?